DEALBOOK; Malone Takes a Step Back Into Cable With Charter Stake

By MICHAEL J. DE LA MERCED

Published: March 20, 2013

John C. Malone made his fortune by becoming one of the pioneering barons of the American cable industry. Now he is moving to re-enter the industry he largely left behind more than a decade ago.">

10:12 p.m. | Updated

John C. Malone made his fortune by becoming one of the pioneering barons of the American cable industry. Now he is moving to re-enter the industry he largely left behind more than a decade ago.

Mr. Malone’s Liberty Media agreed on Tuesday to buy a 27.3 percent stake in Charter Communications, one of the country’s biggest cable service providers, for $2.6 billion.

And in the process, he is helping to cash out the investment firms that helped Charter exit bankruptcy in 2009.

For much of the last decade, Mr. Malone had stayed away from the industry in which he made his name. It was his run at TCI that made him into a media mogul, transforming the company into one of the country’s biggest cable providers with a ruthlessness that earned him the sobriquet “Darth Vader.”

The billionaire has been particularly active in striking acquisitions over the last few years, including by buying stakes in SiriusXM and Barnes & Noble. Last month, Mr. Malone’s Liberty Global agreed to pay $16 billion to acquire Virgin Media, a European cable giant.

Now Mr. Malone is returning to the American cable industry, buying a stake in a company that he could use to engineer more deals. Liberty officials have signaled that they believe cable companies could pursue more consolidation, hoping to reduce costs and gain more leverage in talks with media content companies.

“We are pleased with Charter’s market position and growth opportunities and believe that the company’s investments in its high-capacity digital network, which provides digital HD and on-demand television, high-speed data and voice, will benefit its customers and shareholders alike,” Mr. Malone said in a statement.

Charter, a 20-year-old cable operator, has rebounded from a 2009 bankruptcy filing brought on by a $21 billion debt load. The company is the fourth-largest in the industry by revenue, with four million video customers and 3.8 million residential Internet subscribers.

It has also struck a few deals of its own, notably buying Cablevision’s Optimum West unit for $1.63 billion earlier this year to gain customers in the Rocky Mountain states.

“While we have made real progress, we are still in the beginning of our effort to transform Charter, and we welcome the addition of Liberty Media as knowledgeable shareholders as we grow our products, service capabilities and market share,” Tom Rutledge, Charter’s chief executive, said in a statement.

Under the terms of Tuesday’s agreement, Liberty will pay what amounts to $95.50 a share for the stake, which is made up of 26.9 million shares and 1.1 million warrants. That represents a 6 percent premium to Charter’s closing price on Friday, the last day before reports of the pending investment began to emerge.

Shares of Charter, which is based in Stamford, Conn., rose 2.4 percent Tuesday, to $100.38.

For the investors selling the stake in Charter — Apollo Global Management, Oaktree Capital Management and Crestview Partners — the Liberty investment will allow them to pare back the holdings they gained after taking control of the cable operator in 2009. Apollo will sell all of its holdings, while Crestview will retain a 7.4 percent stake and Oaktree a 2.2 percent one.

“Apollo, Oaktree and Crestview have created substantial value for Charter and its shareholders, and on behalf of Charter’s board, we look forward to working with Liberty Media in creating further value,” Eric L. Zinterhofer, Charter’s chairman, said in a statement.

As part of the deal, Liberty will name four directors to Charter’s board, including Mr. Malone and his top lieutenant, Gregory B. Maffei. Liberty also agreed not to pursue a complete takeover of Charter, at least for now. Tuesday’s deal limits its ownership stake to 35 percent until January 2016, and then 39.99 percent afterward.

The deal, which will be financed with cash on hand and new loans, is expected to close in April or May.

Liberty was advised by LionTree Advisors and the law firm Baker Botts. Charter was counseled by the law firm Kirkland & Ellis. Apollo was advised by Citigroup and the law firm Wachtell, Lipton, Rosen & Katz, while Oaktree was advised by Citigroup, Goldman Sachs and the law firm Paul, Weiss, Rifkind, Wharton & Garrison. Crestview was counseled by Davis Polk & Wardwell.

William Alden contributed reporting.

This is a more complete version of the story than the one that appeared in print.

PHOTO: John C. Malone is chairman of Liberty Media, which owns stakes in many media firms. (PHOTOGRAPH BY ANDREW GOMBERT/E.P.A.)

John C. Malone made his fortune by becoming one of the pioneering barons of the American cable industry. Now he is moving to re-enter the industry he largely left behind more than a decade ago.">